West Texas Intermediate light sweet crude oil futures trade at the New York Mercantile Exchange (Nymex) has pulled off their highs declining in two consecutive days, including a 3.4% decline on Tuesday. One day after experiencing a bearish reversal, crude oil trended lower, crossing below its 10-day average to close the session at $94.42 per barrel. Could this be a reversal in trend, or is it simply a better price to be long at?
Q: How has the Nymex crude oil contract performed in the past when it experiences a bearish reversal followed by a big decline resulting in it crossing below its 10-day moving average?
A: According to the 13 previous occurrences of this event, omitting repeat occurrences within 10 trading days, crude oil has shown a strong bullish edge that peaks 30 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the most recent occurrence of the event (Tuesday, Nov. 27, 2007) is Thursday, Jan. 10, 2008.
Crude rallies in 85% of the cases (11 of 13) by an average of 7.4% relative to the close on the event date. The average of the two declines is 5.0%. The overall return of the 13 cases is 5.5%, which, based on the close on the event date ($94.42) provides a target price of $99.61.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ryan Soudan is an analyst with MarketHistory.com.
